Hard turn to the right

The state takes a different direction in its economic-development efforts.

By Jack Betts

Change they promised, and change they delivered. When Gov. Pat McCrory and the Republicans who run the General Assembly stood for office a year ago, North Carolina’s unemployment rate was among the nation’s worst, with thousands of idle workers struggling to put food on the table. It was a huge comedown for the state once known as the “Dixie Dynamo,” in its industrial heyday among the last to slip into a recession and one of the first to climb back out. Now, after a legislative session that attracted national attention, the new regime is catching hell from the news media, protestors who brought their “Moral Monday” movement to cities and towns from Manteo to Asheville and even some business figures with ties to the GOP.

Former Wall Street Journal correspondent Al Hunt, who went to college at Wake Forest, wrote a column for the Bloomberg View website headlined: “North Carolina Takes a Perilous Lurch to the Right.” The state, he noted, built its pro-business economic and social model on education and public investments such as Research Triangle Park. It had better race relations than its neighbors. “The North Carolina model, which served the region and the country so well, is gone,” he lamented. In a keynote speech to the North Carolina CEO Forum in Raleigh — which McCrory attended — former U.S. Secretary of State Colin Powell sharply criticized the new voter-ID law that he said punishes minorities, voters the GOP needs here and elsewhere. Powell, like the governor, is a Republican.

Yet McCrory rejects the criticism as mere huffing and puffing from leftist media figures and Democrats unhappy that they’re out of power after most of a century’s control of state government. “We changed a lot of the status quo, which was the policy of the left, and we moved from the left to the middle-right,” he says in a phone interview. Their whining and grumbling, he adds, has nothing to do with how executives view North Carolina as a place to expand or relocate their businesses. The changes the legislature made to voting and abortion laws haven’t been raised by recruitment prospects, he says, and the changes made to economic-development policy — lowering personal- and corporate-income tax rates, reducing regulatory burdens, revamping transportation planning — only make the state more attractive for them.

As Sharon Decker, his secretary of commerce, puts it, the administration will continue to emphasize the attributes on which the state once thrived — a clean environment, excellent community colleges and universities, welcoming communities and strong work ethic — but it will be more nimble and efficient in dealing with companies that are considering coming here. “We have to work hard,” she says, “to ensure that a business-friendly environment, job training and our recommitment to education all are a critical part to our future.” Keith Crisco, the Democrat who held her job in the previous administration, credits Republicans with some key tax-policy changes that could lead to true tax reform and not just cuts in income-tax rates. When in power, his party debated the issue but was able to make only modest shifts. “At least they got something done,” he says of the GOP, “and that is a positive thing.”

But will what they’ve done stimulate businesses to hire more people and fan the fire under a smoldering economy? The first unemployment report after the session showed a slight uptick to 8.9% in the state’s jobless rate, tied for the nation’s third worst — an embarrassment but hardly a significant indicator. It will take a while to know whether and how the policy changes have affected the Tar Heel economy, and McCrory hopes to develop some benchmarks to determine whether the changes were the right ones.

One thing’s for sure: The shifts in economic policy, as well as some in social policy, are dramatically different from the Democrats’ incremental ones to make the state attractive to industry. Dating to the days of Govs. Luther Hodges and Terry Sanford in the 1950s and early ’60s, the general theory of economic development had been to build up institutions, improve race relations, protect water and air quality and make North Carolina a place business wants to do business. It began with the industrial-education centers that became some of the nation’s best community colleges. Overcoming vestiges of the Jim Crow era, reforms made the right to vote a far easier civic duty to perform. The legislature poured money into teachers’ salaries and approved handsome appropriations and bond issues to make the UNC system one of the finest in the country. A pro-business environment that offered job training and increasingly lucrative tax breaks and other incentives put North Carolina among the nation’s perennial leaders in economic development — until the recession. Since then, the lack of jobs for so many has prompted the changes adopted since Republicans took control of the state House and Senate in the 2010 election.

In particular, investments in education.especially in the university and community-college systems, no longer top lawmakers’ agendas. “In this legislature, that is not the big emphasis anymore,” says veteran political analyst Ferrel Guillory, director of the Program on Public Life at UNC Chapel Hill. “We haven’t torn the university down, but the theory of change has shifted from bolstering schools and the educational underpinnings of the state and investing in brainpower to cutting taxes, cutting the private sector loose to stimulate brainpower and shifting to a more laissez-faire, less-regulation, fewer-taxes theory of change. And the question is, what is better for business?”

While the state budget approved this year increases spending overall, it cuts key aspects of the education budget that some public-school and university officials claim put those institutions at considerable risk. For example, increasing the student-teacher ratio means a cut of $286 million and potential loss of more than 5,000 public-school teachers and trims funding for teacher assistants, according to the left-leaning North Carolina Budget and Tax Center. It also delivers another blow to the university system, which has endured more than $883 million in permanent cuts since 2008. During this period, the percentage of the UNC system’s budget from state funding has slipped from 73% to 66%. President Tom Ross says he trusts the trend doesn’t mean the system has lost its luster with legislators, especially at a time when most Southern states are increasing support for their public universities. “My hope is that we do not fall behind. This is about the economic future of the state.”

Presiding over a system that the late UNC President Bill Friday believed was the single most important factor in North Carolina’s economic progress after World War II, Ross points out that UNC has borne “graciously if not easily” a series of budget cuts in recent years. “Clearly we are more efficient, and we need to be. But there is a point at which becoming more efficient brings a risk of damaging the quality. If we are going to continue to be effective in creating jobs and driving the economy, there has to be new investment.”

The state has changed in many ways during the last half-century, not the least of which was the influx of residents from other states and regions of the country, many of whom expect government to provide amenities such as parks, museums and good public schools. Political analyst John Davis wonders whether these new voters — including many who considered McCrory, the first mayor of Charlotte to be governor, a big-city moderate before they helped elect him — view this year’s legislation as “progressive pro-business policy.” The Raleigh-based Republican adds, “That is the lingering doubt of this session, where there seemed to be a preoccupation with all things conservative.” Republicans who thought they were sent to the capital with a conservative mandate were wrong, he says. “If you want to lead North Carolina, you are going to have to find ideological balance in all things.” Still, they had every right “to generate Republican notions of how to generate jobs, and it’s only fair to allow them a couple of years to see if it works or falls on its face.” But whatever the ruling majority does, he cautions, it must reflect the expectations and values of the voters. “Democrats overreached and lost power. Republicans can overreach and lose power.”

But for now — even with the ruckus the session has kicked up — time is on their side. After capturing both houses in 2010, Republicans did to Democrats what Democrats had done to Republicans for years: They used census data to draw new legislative districts designed to keep the party in power the rest of the decade. Though rank-and-file Republicans seem relatively safe, House Speaker Thom Tillis has announced he’s running for U.S. Senate next year, a race Senate President Pro Tem Phil Berger is also eyeing. In a statewide race to unseat Democrat Kay Hagan, the GOP nominee will need to win the support of moderates of both parties, as well as independents. The same goes for McCrory, whose popularity has plummeted, if he seeks re-election in 2016.

But here, too, time will work in their favor. Slowly but surely, the economy is improving, and that will outweigh any dissatisfaction the electorate might have about social issues. Neither Tillis nor McCrory think their party’s lawmakers have overreached. Both say the news media have distorted the impact of the session’s two most controversial bills, one imposing more regulations on abortion clinics and the other requiring voters to produce photo ID at polling places and reining in the ability of college students to vote and restricting when and where early voting will be allowed. “I think at the end of the day, the average voter wants a good economy,” Tillis says, “and if our decisions produce good results and they get their tax returns and get money back and they see unemployment going down and job creation going up, I believe they will see that as progress. We’ve made decisions that are getting North Carolina back on the right economic track.”